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Mahindra & Mahindra Ltd. | Q1FY14 Result Update




IndiaNivesh Securities Pvt Ltd


13 Aug 2013





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 Result Updates Mahindra & Mahindra Ltd. | Q1FY14 Result Update Reported PAT above consensus due to higher dividend income Mahindra & Mahindra’s reported Q1FY14 PAT was above street expectations due to higher dividend income. Quarter witnessed strong performance in tractor segment with margin improved due to effective cost control and price hike. Top line grew by 7% YoY (down 4.3% QoQ) to Rs 100.22 bn, below consensus of Rs. 103.14 bn due to lower than expected realization dragged by adverse mix, higher discounting pressure and advertisement spends on weak demand environment in the Auto space. However tractor segment performed well on the back of strong monsoon. Volume of tractors, including exports, jumped 25% Y-o-Y to 74,577units. Average realization (Auto+ tractor) remained flat YoY (down 4.11% QoQ) to Rs. 5, 08,111. EBITDA margin improved 100 bps YoY and 73 bps QoQ to 13 % led by strong performance by its tractor sector and lower RM cost. RM cost (adjusted) decreased by 227 bps YoY to 73.8% (as a percentage of sales). Company’s reported net profit increased by 7% YoY Rs 9.37 bn due to substantial jump in other income (maiden dividend from Mahindra Vehicle Manufacturers Limited (MVML) of Rs 700 mn). The auto segment showed subdued performance during the quarter dragged by subdued UVs, three wheelers and export volume. Auto segment’s EBIT margin improved 46 bps YoY (down 54 bps QoQ) to 9.27%, and tractor segment EBIT margin improved by 76 bps QoQ and 107 bps YoY to 16.74% due to price hike in tractor sales in October 2012 and April 2013. Ssangyong Motors, the South Korean subsidiary reported a quarterly profit first time in six years, recorded net profit of Rs. 410 mn. Management expects that tractor demand continues to remain strong driven by good monsoons. Management has revised tractor growth outlook from 6-8% earlier to 10 -12% for FY14. . However, company expects FY14 to be more challenging for Automobile segment driven higher diesel prices and weakening macro environment. M&M has corrected half of the excess inventory in July and expect rest to happen by end of this quarter should reach 4-5 weeks inventory level. Valuation: We have a positive view on the stock due to its strong product portfolio catering to both urban & rural section. We expect that moderation in automobile segment growth would be compensated by tractor segment growth. At CMP of Rs 871, M&M is trading at 11.35x FY14e consolidated earnings. We maintain our buy rating on the stock with target price of Rs.995.

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